Alan Grayson accused the Fed of manipulating the stock market

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Crossposted at Daily Kos

     Life as a small investor is hard enough already. You have to look into all of the investment apps uk, track trends, make quick investment decisions, know when to buy and sell, and so much more! But then you add corporations and the Federal Reserve System allegedly manipulating the market? That makes it even harder! Back in late September, Alan Grayson (Big D-FL08) grilled Federal Reserve General Counsel Scott Alvarez on whether or not the Federal Reserve has manipulated the stock and futures market. Since this hasn’t been diaried and Sunday is a slow news day, I thought it would be fun to watch Alan Grayson in action in a bit of a flashback.

(UPDATE: Unfortunately and oddly, the video is no longer working for some strange reason. Good thing I transcribed it when I did. I am looking for another version of the same vide, so hang in there until I can find it

UPDATE 2: Found a second video. Hope you enjoy)

      Transcript and commentary below the fold.

Alan Grayson (Big D-FL08):      “Did the Federal Reserve ever try to manipulate the U.S. stock market?”

Federal Reserve General Counsel Scott Alvarez:     “No, sir, not that I’m aware of.”

Grayson:      “Not that you’re aware of, but, you’re the attorney, right?”

Alvarez:     “That’s right.”

Grayson:      “So, you might not even know, right?”

Alvarez:     “I would expect to know if there were something like that being done. I am not aware of that at all.”

Grayson:      “And if you did know you’d be bound by attorney/client priveledge and you wouldn’t be able to tell us, right?”

Alvarez:     “Uhh, sir, if there were something the Federal Reserve were doing outside it’s legal authority I would have an obligation to say something about that.”

Grayson:      “Alright, so we agree that any participation by the Federal Reserve in the stock marhet or the futures market is outside the Federal Reserves legal authority, right?”

Alvarez:     “The Federal Reserve has some authoruty to regulate various aspects of markets and, uhh, participate in markets in certain ways, so, I think your question is too categorical,but . . . ”

Grayson:      “I think not, actually. Why don’t you answer it.”

Alvarez:     “I don’t know what, I don’t know. Your question is so, uhm, overbroad, I don’t know whhere to begin to answer it.”

Grayson:      “I don’t think it’s that overbroad. I’d like you to tell me if whether it’s in the Federal Reserve’s legal authority to try to manipulate the stock market or the futures market.”

Alvarez:     “Sir, I don’t believe the Federal Reserve , uh, tries to manipulate the stock market.”

Grayson:      “Tries? Tried.”

Alvarez:     “No, sir.”

Grayson:      “Do they?”

Alvarez:     “The Federal Reserve’s, uh, obligation and what it does in monetary policy is try to influence interst rates, and in that way to, uh, maximize employment and to stabilize prices.”

Grayson:      “Now, if in fact the Federal Reserve were trying to do that, or doing it, isn’t thhat something that we’d want to know?”

Alvarez:     “And, to the extent that the Federal Reserve influences interest rates, it does make announcements of that decision immediately.”

Grayson:      “That’s not what I said.”

Attempted answer by Mr. Alvarez cut short

Grayson:      “I said manipulate the stock market or the futures market, what do we want to know.”

long pause

Grayson:     “Yes or no?”

Alvarez:      “Could you define what you mean by . . .”

Grayson:     “I think you know what I mean Mr. Alvarez. Now wouldn’t it be very helpful to have a GAO (U.S. Government Accountability Office) audit on that subject? Wouldn’t it?”

Alvarez:      “I don’t know what it is that you are seeking to audit, sir.”

Grayson:      “But I just said.”

Alvarez:     “It would be helpful if you could . . . ”

Grayson:      “So let’s go on to something else. Does the Federal Reserve actually posess all the gold that is listed on their balance sheet? Do they actually posess it?””

Alvarez:     “Yes.”

Grayson:      “Has that been audited by the GAO?”

Alvarez:     “Uh, I believe that is within the GAO’s authority to audit, it’s certainly something that our independant accountant is able to verify and does.”

Grayson:      “So, if I go ahead and ask for GAO audit you won’t oppose it, right?”

Alvarez:     “To auditing the presence of the Gold on the facility? I don’t see any reason to object to that.”

Grayson:      “Good. Now there’s been all sorts of claims of insider trading and front-running by the people who execute the trades for the Federal Reserve in the market. By the way, who is that? Who actually executes the trades for the Federal Reserve in the markets?”

Alvarez:     “I haven’t heard of any allegation of front running in the . . . ”

Grayson:      “Well that’s funny, because you’re the General Counsel, so if anybody would know that you would think you would know about it.”

Alvarez:     “The Federal Reserve Bank of New York is responsible for effecting the transactions and implementing monetary policy.”

Grayson:      “Ok, so, then answer the question.”

Alvarez:     “The Federal Reserve Bank of New York.”

Grayson:      “That’s your answer?”

Alvarez:     “You wanted to know who uh, implements the . . . ”

Grayson:      “You have people sitting in seats at the Federal Reserve Bank actually executing those trades? You don’t delegate that to anyone else?”

Alvarez:     “No, the Federal Reserve Bank of New York, of course, it’s a process where there are several steps, the Federal Reserve Bank of New York executes transactions through primary dealers.”

Grayson:      “AHA! Okay, who are the primary dealers?”

Alvarez:     “The list of primary dealers is on our website.”

Grayson:      “Do you know any of them? Can you name a single one?”

Alvarez:     “Uh, uh, sure, JPMC.”

Grayson:      “Go ahead. What?”

Alvarez:     “J.P. Morgan-Chase.”

Grayson:      “Okay. Do you mind if we have a GAO audit to see whether there has been front running or insider trading by them? Do you mind? Is that okay with you?”

Alvarez:     “I’m not sure I have any decision making authority . . .”

Grayson:      “Well, you’re the General Counsel. I want to know if you’re not going to try and stop it.”

Alvarez:     “The GAO, the GAO audits Government agencies, if you want an audit of a private sec, a private entity, I think that is something that Congress would have to change the authority of the GAO to allow.”

Grayson:      “Alright, now let’s say, you’re right, that’s what we’re doing right here, by the way, lets say that the Federal Reserve gave a billion dollars to a very promising fledling institution called the Dick Cheney savings and loan, whose only asset is an un-numberbed Swiss bank account, don’t you think it would be a good idea for the GAO to have the GAO have authority to look into that?”

Alvarez:     “So, under the GAO authority as written, a specif . . , a loan by the Federal Reserve to a specific entity, say, a particular bank as you’ve pointed out, would be subject to GOA audit, we don’t oppose that.”

Grayson:      “Alright, now, the Federal Reserve has given 1 Trillion dollars out, 1 Trillion dollars in the past twelve months, that’s how much the increase in it’s assets and liabilities in it’s balance sheet has been. Who got the money? This, by the wqay, is a question that was sent to me by Beatrice Delgado. She just wants to know who got the money. Will you tell me?”

Alvarez:     “So, the, uh, most of the increase in our balance sheet has been the purchase of U.S. Government securities and the purchase of agency, uh, guaranteed securities in the open market from market participants broadly.”

Grayson:      “And what about the rest . . . ”

Chairman:     “The Gentleman’s time has expired.”

Grayson:      “Thank you, Mr. Chairman, but I really think we need answers to these question and the only way to get answers to these questions is to have the GAO audit the Federal Reserve. Thank you very much.”

Chairman:      “I just want to make the point that if the Gentleman has more questions there will be an opportunity to submit them in writing, and that opportunity will be available. Uh, the Gentleman . . . ”

    There is your AHA! moment. Did you even know that the Federal Reserve purchases securities on the open market? The fact that J.P. Morgan-Chase handles the Fed’s transactions would put them and other firms who do business like this with the Fed in a prime position to front run the market, just as Mr. Grayson alleged. And why wouldn’t they? It is not like Wall Street is above that sort of manipulation, hell, that’s what they do for a living!

Ron Paul tells Bloomberg that Congressman Watt has just more or less killed the bill to audit the fed:

Representative Ron Paul, the Texas Republican who has called for an end to the Federal Reserve, said legislation he introduced to audit monetary policy has been “gutted” while moving toward a possible vote in the Democratic-controlled House.

The bill, with 308 co-sponsors, has been stripped of provisions that would remove Fed exemptions from audits of transactions with foreign central banks, monetary policy deliberations, transactions made under the direction of the Federal Open Market Committee and communications between the Board, the reserve banks and staff, Paul said today.

“There’s nothing left, it’s been gutted,” he said in a telephone interview. “This is not a partisan issue. People all over the country want to know what the Fed is up to, and this legislation was supposed to help them do that.”..

nakedcapitalism.com

Bold text added by the diarist.

    Say what you will about Ron Paul’s history and ideology, but that should NOT be a strawman to be used to discredit the need to bring accountability and transparency to the Federal Reserve. You don’t hate accountability and transparency, do you?

    The move to audit the Federal Reserve, embodied in H.R. 1207, is going to fail despite the 308 co-sponsors it has garnered, not because it is not a good idea, not because the Federal Resserve has clearly done no wrong, but for the same reasons that Health Care Reform has been watered down, and for the same reasons that many more sensible measures to come before Congress in the near future will be watered down or pushed aside. It is because many members of Congress are corrupt agents of the special interests, who sell their political souls and their constituents interests downn the river in return for the legalized bribes that we so non-chalantly call “campaign donations”. I, for one, fullysupport the move to audit the Federal Reserve, and I hope that members of Congress who truly believe in fiscal responsibility do not give up on such a measure easily, as I believe that it iis vital to our nation’s economic well being to have full accountability for both the un-democratic Federal Reserve that sets our nation’s monetary policy and the broken banking system that they do dirty business with, as evidenced by Mr. Grayson’s tough questions regarding the need for transparency, amny of which were avoided and then answered reluctantly by the Fed’s General Counsel Mr. Alvarez.

    Obviously I am a bit of a fan of Alan Grayson’s. I dig the unapologetic truth, and even though telling the truth can put you in an awkward position on occassion, it is better to be in an awkward position for telling the truth than for telling lies.

    Why is it that we do not see other members of Congress from the Democratic party asking these tough questions? I levae that question for you to answer for yourselves.

    I firmly believe that the only way to encourage more members of Congress to act in the interests of We The People is to reward the few who do. I think that is the best way to get BETTER Democrats elected to public office, as I believe that the current state of the health care debate is proof positive that MORE will only get you so far. In times like these BETTER is what we need more than anything else.

    Keep Alan Grayson in Congress for years to come by donating with ActBlue here

     I also think that everyone on both sides of the political spectrum would like to see more transparency at the Federal Reserve especially now that thee sordid state of our nation’s financial affairs is obvious to all.

     I often say that I am a patriot first and a partisan second. I believe that should be true of EVERYONE who engages in the political arena. Country first is what we ALL sholuld believe in, not the fake country first that Sarah Palin espouses while she runs off to China to speak for a huge fee while bad-mouthing the President, not the fake country first we see on display at teabagger rallies, and certainly not the fake country first that is behind senseless acts of bipartisanship where it is all too obvious that both parties are working together against the interests of the average American citizen. I can not think of more than a few matters of national importance that are more vital to our nation’s well being than that of the accountability of those who make our nation’s monetary policy. The fact that we have to fight just to be able to bring some small amount of transparency to that institution speaks to just how far we have to go still in our battle to keep this Democracy one of The People, by The People and For The People, and not just for the few, the powerful and the special interests they serve.

    Though there are many, many questions still to ask, at least there is one man who isn’t afraid to ask them. For that I am very grateful.

     Also crossposted at The Progressive Electorate.com